From the Sightline Institute Blog:
Imagine that carbon permits are World Series tickets. If the government gives all World Series tickets to Exxon for free, will Exxon give them to us for nothing, or sell them for what the market will bear?
What, give something away for nothing? That's not the Exxon I know.
This analogy, borrowed from Peter Barnes of the Tomales Bay Institute, is the simplest explanation I've seen of why grandfathering carbon permits is a bad idea.
Among climate policy geeks, it used to be the conventional wisdom that grandfathering that is, handing out the right to emit carbon based on previous years' emissions -- was a smart way to go. Some of this support was political in nature. Big emitters, the theory went, might be less likely to kill a bill if their "right" to emit carbon was fairly secure.
But the times are a' changing. Now, most people are coming to recognize that grandfathering is a dud. Instead, carbon auctions are the rage.
Under the "grandfathering is good" mindset, people thought that handing out permits for free would protect consumers from sharp price increases. Companies that don't pay anything for their carbon permits, the reasoning went, wouldn't have any costs to pass through to their consumers.
The World Series analogy helps show why this is bunk. In a carbon-constrained economy -- that is, a economy in which emissions are strictly limited -- a permit to emit carbon is has a value in the marketplace, much as an World Series game with a limited number of seats has a market value....MORE